Frank Guinta's Tea Party Downgrade

For all the wrong reasons, (0.00 / 0)

Guinta is on to something about taxes.  Taxes - particularly income taxes - are a drag on the economy.  But, you know, a blind squirrel and a broken watch, etc.  The paradox of thrift is what policy makers should be concerned with right now - from individuals to state and local governments.

The US does not need to finance federal spending with taxes or bond sales.  We are the issuer of our fiat currency and can produce any amount of dollars to pay for our priorities.  The appropriate debate then becomes one of inflation rather than solvency, and is a completely different discussion.

I was delighted to see Warren Mosler make some similar points in Huffpo yesterday:

http://www.huffingtonpost.com/...

The overwhelming response to the S&P downgrade by everyone from Buffet to Greenspan, and most every financial and academic economist in the world was along the lines of:

The U.S. is the issuer of the dollar.

It can print dollars.

So it can always make timely payments without limit.

There is no solvency issue for the U.S. There is no such thing as the US running out of dollars to spend.There is no such thing as the US being dependent on taxing or borrowing to get dollars to spend.

In the immediate aftermath of Since the start of the financial crisis, the Fed/Treasury lent, spent, or guaranteed $28 $29 trillion to save the banking system.

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by: StraffordDem @ Thu Aug 18, 2011 at 12:20:57 PM UTC

But given the current situation (0.00 / 0)

Frank has some very wrong reasons for his position.  For example, he insists, as do all Republicans, that "small business owners" are the ones in the highest brackets.  That is only true if you forget that the tax code has so many loopholes that enormous companies and billionaires can find ways to classify where they get their money as a "small business."  Almost every real small businessperson takes home an income (not the proceeds of their business, because that is not their income) under $250,000. And the higher rates only apply to income over $250,000, not all their income.  Frank probably knows all this, but the talking points are what he uses, and they are a bunch of lies.

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by: Lucy Edwards @ Thu Aug 18, 2011 at 13:48:37 PM UTC

[ Parent ]

Agreed, Lucy. (0.00 / 0)

And I struggle with how to change paradigms on economics and monetary policy while understanding that the debate takes place deep on their turf.  

I'm convinced that the argument over the fair share of taxes reinforces the misconception that the taxes are a required finance tool for federal spending.  If we can break that link, even if it means separating from the conventional positions about progressive taxation, we open a much broader and more meaningful discussion on what our priorities are and how we direct economic behavior.  

Imagine what policies could be implemented if we could remove the irrational fear of insolvency.


In the immediate aftermath of Since the start of the financial crisis, the Fed/Treasury lent, spent, or guaranteed $28 $29 trillion to save the banking system.

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by: StraffordDem @ Thu Aug 18, 2011 at 14:13:48 PM UTC

[ Parent ]

Guinta and his ilk represent the commercial class, (0.00 / 0)

the people who sit at the nexus of producers and users and try to capture their "cut" as the goods and services stream by--sort of like highway men of old.
Looked at it from this perspective, our public corporations are tasked with sitting at the same nexus and keeping everyone honest.  Which puts our public corporations into conflict with the highwaymen -- the middlemen who hold up the works unless they get paid off.
If you want an inside glimpse, follow the story of Robert Emmel
http://www.bnet.com/blog/adver...

who's incurred the wrath of Rupert Murdoch's News American Marketing Group by revealing how advertisers are cheating producers and retailers of food stuffs. The summary judgment is sort of a judicial bone thrown to people who are eventually going to lose. Courts like to do that.

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by: hannah @ Thu Aug 18, 2011 at 18:53:36 PM UTC

[ Parent ]

BTW, the Justice Department is investigating S&P and Los Angeles just (0.00 / 0)

fired them as their rating agency.

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by: hannah @ Thu Aug 18, 2011 at 18:58:01 PM UTC

[ Parent ]

The cynic in me can't help but wonder (4.00 / 1)

if the purpose of the downgrade was to make the almost certain indictments look political.


In the immediate aftermath of Since the start of the financial crisis, the Fed/Treasury lent, spent, or guaranteed $28 $29 trillion to save the banking system.

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by: StraffordDem @ Thu Aug 18, 2011 at 19:22:10 PM UTC

[ Parent ]

Margins (0.00 / 0)

That the highest marginal income tax rate in this country applies to income over 250k is just bad policy. Clearly, that's a lot more money than most families make, but it's not a lot of money as far as high income in America goes.

Should the rate for 250k earners go back to what it was in the Clinton era? Yes, I believe it should. But that's not enough.

The point of progressive taxation is not to punish success or to unfairly distribute the burden of public needs--it's to distribute the burden in such a way as to cause the least pain to everyone. The more you make, the larger the percentage you could give up without it substantially affecting your standard of living. And by the way, the more you make, the less you spend--assuming government isn't running a surplus, it pumps every tax dollar back into the economy, creating more jobs than someone who saves 90% of her income.

So here's a crazy idea: how about a new, higher, marginal rate for people making over ten million dollars a year? There are enough of them in this country that it matters.

Of course, that still won't address Buffett's criticism: capital gains (money gained from investments) are taxed at a much lower rate than income (money gained labor). But it's a start.

--
Hope > Anarch-tea
Twitter: @DougLindner

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by: Douglas E. Lindner @ Thu Aug 18, 2011 at 14:12:22 PM UTC

Actually, what we need to tax is people who hoard the money (0.00 / 0)

and keep it out of circulation.  Passing it back and forth on debentures and derivatives and various insurance scams doesn't count.

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by: hannah @ Thu Aug 18, 2011 at 18:56:08 PM UTC

[ Parent ]

The logic doesn't work, Frank, and Charlie and Kelly. (0.00 / 0)

If tax cuts created jobs, then we should be swimming in jobs because we've got the lowest taxes in almost 60 years.  

Tax cuts don't create jobs. Demand for products and services creates job, Frank.  Economics 101.

Even government spending on endless, useless wars creates jobs.  Somebody has to make the weapons.  What creates financial crises is not paying for those weapons as you purchase them, and putting the tab on a damn credit card, like Republicans are want to do.

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by: mevansnh @ Thu Aug 18, 2011 at 20:28:23 PM UTC

Arithmetic (0.00 / 0)

As Paul Krugman points out , the arithmetic just doesn't  support the Grover Norquist lock step followers.

Duh!

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by: Chaz Proulx @ Fri Aug 19, 2011 at 05:31:25 AM UTC